Non-Commercial Item Acquisition with Adequate Price Competition
NOTE: This is the second in a three-part series on Time-and-Materials/Labor-Hour Proposal Requirements. Part 1 addressed non-commercial item acquisition with adequate price competition. This Part 2 addresses non-commercial item acquisitions where there is not adequate price competition (FAR 52.216-30). Part 3 will address commercial item acquisitions at FAR 52.216-31 (which must, by law, be awarded based on adequate price competition).
Applicability: As stated at FAR 16.601(f)(2), the solicitation provision at FAR 52.216 30 applies to Time-and-Materials/Labor Hour (T&M./LH) solicitations for non-commercial item acquisitions, where the price is not expected to be based on adequate price competition.
Key Requirements: T&M/LH contracts provide for reimbursement to the contractor based on a fixed hourly rate for each labor category listed in the contract. Under the current FAR T&M payment clause for noncommercial items, subcontractor costs for labor categories specified in the contract are also reimbursable at the fixed hourly rates in the contract. The purpose of this FAR solicitation is to state whether the contractor is required to propose a separate rate for each subcontractor or is allowed to use a single rate. For example, if the contract proposes a labor category for a Senior Engineer, can the contractor propose a single fixed hourly rate (e.g., $200 per hour) for all Senior Engineers performing under the contract, or must the contractor propose separate rates (e.g., $200 per hour for a Senior Engineer of the Prime Contractor, $180 per hour for a Senior Engineer of Subcontractor A, $210 per hour for a Senior Engineer of Subcontractor B, etc.).
Under FAR 52.216-30, the offeror must specify separate fixed hourly rates for each category of labor to be performed by the offeror, each subcontractor, and each division, subsidiary, or affiliate of the offeror under a common control. Thus, when the contract is anticipated to be awarded for a noncommercial item on a noncompetitive basis, the offeror does not have the option of proposing a single fixed hourly rate or separate rates, i.e., the contractor must propose a separate fixed hourly rate for each subcontractor. Furthermore, the contracting officer has no authority to deviate from this requirement (as opposed to the solicitation provision at 52.216-29 for noncommercial T&M with adequate price competition, where the contracting officer may be authorized by the agency to alter that provision). Thus, offerors must submit separate rates for noncommercial items anticipated to be awarded on a noncompetitive basis.
Compliance Verification: Compliance verification is performed by numerous Government representatives, including the cognizant auditor, Contract Specialists, Government price analysts, and/or the Contracting Officer. A lack of separate rates will generally be readily visible, since cost data will most likely be required for proposals subject to this provision. Highlighting the issue further is that if the anticipated contract award will exceed $700,000, the contractor will be required to submit certified cost or pricing data, which is even more likely to trigger Government review of the separate rate requirement.
Remedies: When the Government determines that the offeror has failed to propose separate rates as required by the provision, the proposal may be deemed as non-responsive and the offeror eliminated from award consideration. In other cases, the Government may, depending on the circumstances of the particular issue, provide the offeror an opportunity to revise the proposal to include separate rates. It is strongly recommended that offerors comply with the solicitation provision to preclude the possibility of being eliminated from award consideration.
In the early 2000’s, revisions were made to the T&M payment clause for noncommercial items and a payment clause was implemented for T&M contracts for commercial items. Both of these clauses specifically provided for subcontractors to be reimbursed at the fixed hourly rates in the contract. Prior to these FAR changes/amendments, FAR provided for reimbursement of subcontracts under T&M contracts at actual cost. As a result of these changes/amendments, it became necessary for the FAR Council to address whether or not T&M contracts should provide for a single fixed hourly rate for each labor category, or separate fixed hourly rates by contractor/subcontractor. During the deliberations of this issue, it became apparent that the determination of whether to use a single fixed hourly rate or separate fixed hourly rates would differ depending on (a) whether the acquisition was commercial or non-commercial, and (b) whether the acquisition was awarded based on adequate price competition.
For acquisitions that are noncommercial and awarded without adequate price competition, the contractor will be required to submit cost data, including data showing the build-up of the separate rates for the offeror, each subcontractor, and each division, subsidiary, or affiliate of the offeror under a common control. Since the Government will already have the cost data on separate rates as part of the submission, and that data is the basis for contract negotiations, it logically followed that the Government require that separate rates be included in the contract. Thus, this provision does not provide an option – offerors must propose separate rates.